Performing Mutual Funds increase asset base

The BSE Sensex is down nearly 14 per cent over one year and the average equity fund has lost 18 per cent of its Net Asset Value. But studies show that mutual fund investors have become savvy and have exited the poorly performing funds and have invested in better performing funds.

In a study done by Business Line Newspaper research, data on assets managed by equity schemes show that equity funds which have handled the market meltdown well over the past year have managed to sharply expand their assets under management.

Twenty four of the 300 open-end equity funds in operation doubled their asset base between August 2007 and August 2008. This includes funds such as Sundaram Select Focus, Kotak Opportunities, Reliance Diversified Power and Reliance Regular Savings Fund, all of which contained declines in their NAV to levels much lower than the Sensex, in a falling stock market. Each of these funds has witnessed substantial fresh inflows over the past one year. It could have been done using SIPs as well other than new subscriptions alone.Even small-sized funds such as DWS Investment Opportunity have seen inflows on the back of a good show.

Expanded base
Some of the already large funds which expanded their asset base were Reliance Diversified Power, which managed Rs 1,790 crore in August 2007 and expanded to Rs 5,080 crore by August 2008, and DSP ML Top 100 Fund, which saw its assets go up from Rs 469 crore to Rs 1,032 crore. Index funds from UTI Mutual Fund and LIC Mutual Fund have also expanded sharply.

In contrast, investors have also been quick to exit equity funds which saw significant NAV erosion during this period. The asset base for funds such as ABN Amro Future Leaders, DBS Chola Contra, Kotak Lifestyle and ICICI Pru Emerging STAR has shrunk by as much as 55-60 per cent, after the funds suffered negative returns of 24 to 38 per cent over the past year. The assets dwindling much more than the funds’ NAV is suggestive of investors pulling out money from these funds.

Thus it is important to invest based on past track record of the fund house, scheme and compare it with the benchmark rather than investing based on advertisements, NFO value of Rs 10 (which is meaningless), poor track record or no track record etc.